With a GDP growth rate of 7.8%, India was the world’s fastest growing major economy in 2023. Its economy is now the world’s fifth largest, and is on track to become the third largest by 2030 behind the United States and China. However, per capita income is less than half of the world average, and India’s development priorities remain focused on poverty alleviation, job growth and infrastructure creation.

As a result of its GDP growth potential, urbanisation, growth in built spaces, and the increased demand for electricity as well as materials such as cement and steel, energy demand growth in India is on track to outpace all other regions of the world by 2050. This could put strains on its energy system, which for the moment relies heavily on imported fossil fuels, especially crude oil and natural gas. In tandem with this sharp rise in energy demand, carbon emissions in India could increase significantly over this period due to a growth in fossil fuel use for transport, power generation and industry.

To address these challenges, India has been pursuing a range of decarbonisation and diversification strategies. Most notably, India has a set a target for reaching net zero emissions by 2070. In recent years, India has scaled up solar and wind power investments and also announced measures to promote domestic clean energy supply chains. In 2020, India announced the Production Linked Incentives scheme to set up domestic manufacturing of solar modules, batteries and other clean energy equipment. India also has a long-standing energy efficiency programme in place, as well as a new hydrogen policy that envisions domestic manufacturing of electrolysers and the production of low-carbon hydrogen.

India made its debut in the sovereign green bond market in January 2023. Two tranches of bonds valued at USD 1 billion (INR 80 billion) were marketed primarily to local investors. The issue of bonds – whose proceeds were destined to support renewables, metro rail lines, and low-carbon hydrogen production – was more than four times oversubscribed.  

Such initiatives have led to a surge in Indian clean energy investment in recent years. Spending reached USD 68 billion in 2023, up by nearly 40% from the 2016-2020 average. Almost half of this was devoted to low-emissions power generation, which includes solar PV. Fossil fuel investment grew by 6% over the same period to reach USD 33 billion in 2023, in response to rising demand for fuel and coal-fired power generation. Clean energy investment is on track to double by 2030 under today’s policy settings, but would need to rise by a further 20% to get fully on track for the country’s energy and climate goals. Addressing risks that push up the cost of capital will be critical in this endeavour.